Your Browser Does Not Support JavaScript. Please Update Your Browser and reload page. Have a nice day! New York District Court Upholds Dreier Victim's Right to $33 Million Art Collection - New

New York District Court Upholds Dreier Victim’s Right to $33 Million Art Collection

By Ariel Greenberg

On May 11, 2009, Marc Dreier–former high profile lawyer turned phony promissory note purveyor at the height of the financial crisis–pled guilty to eight charges of fraud in the United States District Court for the Southern District of New York. On July 13, he was sentenced to twenty years in federal prison. Last week, on July 2, 2013, Federal Judge Jed Rakoff upheld a claimant’s right to take 15 art works once owned by Dreier that he pledged as security to finalize a deal.

The extent of the fraud perpetrated by Dreier earned him the moniker “mini-Madoff.” A graduate of Yale University and Harvard Law School, Dreier devised a scheme whereby he sold fake promissory notes, bilking hedge funds and other investors out of $700 million. Dreier had used the ill-gotten funds to fund a lavish lifestyle, which included owning a $10 million apartment on the Upper East Side, Hamptons beachfront property, expensive cars, an $18 million yacht, and a world class art collection worth millions. His assets were seized, frozen, and sold at auction to pay off the victims of his scheme.

The case settled last week involved Heathfield Capital Limited (successor-in-interest to Eliot International L.P. and Associates)–the last and largest victim of Dreier’s fraud–and one of Dreier’s personal art collections. Heathfield had filed a petition seeking to satisfy this security interest in the artwork promised to them by Dreier. Back when they were negotiating their deal with Dreier,  Heathcliff (then Eliot) had raised concerns about the transaction and Dreier proposed that he would personally vouch for the sellers and pledge his personal art collection as security. The collection contains fifteen works of art by artists including Andy Warhol, Mark Rothko, and Roy Lichtenstein and is valued at $33 million.

Other victims of Dreier (the Victim Group, as they are referred to in the opinion) opposed this petition, which would remove the valuable collection from the pool of assets that may be used to satisfy the restitution claims of other victims of Dreier’s fraud.

Examples of Marc Dreier’s art collection. These pieces, including the 1978 Andy Warhol print of Muhammad Ali, were among the works seized and sold in November 2011, following Dreier’s conviction.

The Victim Group had raised several arguments, including that Heathfield was “not without reasonable cause to believe” that the collection was subject to forfeiture because “it ignored various red flags that should have alerted a reasonable person that fraud was afoot.” However, Judge Rakoff ultimately rejected the Victim Group arguments, noting that the transaction “had many other trappings of legitimacy.” He stated that although Dreier’s offer to pledge his personal collection as collateral in the deal was “concededly unusual,” Dreier had both the “pecuniary and professional motives for making the proposal” and that Heathfield had a history of accepting unusual items as collateral, including an Upper East Side penthouse and a landing slot at LaGuardia airport. Judge Rakoff also noted that this deal was being struck at the height of the financial crisis, when Wall Street was reeling from financial crashes and was “experiencing many unprecedented events with regularity.” Read the opinion here.

Under the security agreement, Elliot still owes a $1.65 million fee (originally owed to Mr. Dreier). The fee will be split among the other victims.